PROBLEMS AND EXERCISES 




TO ACCOMPANY 



LAY'S ECONOMICS FOR THE 
GENERAL READER 



AND 



,Y'S OUTLINES OF ECONOMICS 



BY 



H. GORDON HAYES 

Professor of Economics in Ohio State University 



iQeto got* 

THE MACMILLAN COMPANY 
1921 

All rights reserved 



PROBLEMS AND EXERCISES 

TO ACCOMPANY 
CLAY'S ECONOMICS FOR THE GENERAL READER 

AND 

ELY'S OUTLINES OF ECONOMICS 



*&&& 



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PROBLEMS AND EXERCISES 

TO ACCOMPANY 

CLAY'S ECONOMICS FOR THE 
GENERAL READER 

AND 

ELY'S OUTLINES OF ECONOMICS 



BY 

H. GORDON HAYES 

Professor of Economics in Ohio State University 



H3eto gork 

THE MACMILLAN COMPANY 
1921 

All rights reserved 



PRINTED IN THE UNITED STATES OF AMERICA 






Copyright, 1921, 
Bt the macmillan company. 



Set up and electrotyped. Published October, 1921. 



8)C!.A627229 



Press of 
J. J. Little & Ives Company 
New York, U. S. A. 



OCT I2I92I 









at 

PREFACE 

These problems were prepared during the past school 
year for the use of students in Elementary Economics at 
Ohio State University in connection with Clay's Economics 
for the General Reader and Ely's Outlines of Economics. 
The arrangement follows the order of assignments in the 
two books that has been found satisfactory. Obviously, the 
subject matter of the outline and, to a considerable degree, 
its arrangement were determined by the contents of the two 
books rather than by the judgment of the author. 

Several of the problems are taken from Professor F. M. 
Taylor's Principles of Economics and from his examination 
lists. A few are taken from the author's Problems and Exer- 
cises in Economics published by Henry Holt and Company. 

H. Gordon Hayes. 
Columbus, Ohio. 

September, 1921. 



CONTENTS 

PAGE 

I. INTRODUCTION 

A. Introductory 

Clay, chapter I l 

B. The Nature and Scope of Economics 

Ely, chapter I * 

C. The Characteristics of the Present Economic System 

Ely, chapter II 2 

D. The Evolution of Economic Society 

Ely, chapter III 2 

E. The Evolution of Economic Society (Continued) 

Ely, chapter IV 3 

F. The Economic Development of the United States 

Ely, chapter V 3 

G. The Economic Development of the United States (Con- 

tinued) 
Ely, chapter VI 4 

H. Elementary Economic Concepts 

Ely, chapter VII 4 

II. THE PRODUCTION AND CONSUMPTION OF WEALTH 

A. The Circulation of Wealth 

Clay, chapter XII 6 

B. Production 

Ely, chapter VIII 7 

C. The Division of Labor 

Clay, chapter II ° 

D. The Organization of Production 

Clay, chapter III ° 

E. Consumption 

Ely, chapter IX 9 

III. VALUE AND PRICE 

A. Value and Price 

Ely, chapter X II 

vii 



viii CONTENTS 

PAGE 

B. Value and Price (Continued) 

Ely, chapter XI 13 

C. Monopoly Price 

Ely, pp. 189-190; 201-207 16 

D. Value 

Clay, chapter XIV 17 

E. Value (Continued) 

Clay, chapter XV 18 

F. Speculation and Price 

Clay, chapter IV 18 

IV. THE ORGANIZATION OF BUSINESS ENTERPRISE 

A. Capital and Its Organization 

Clay, chapter V 20 

B. Business Organization : The Corporation 

Ely, pp. 212-230 20 

C. Competition and Association 

Clay, chapter VI 22 

D. Monopoly and Combination 

Clay, chapter VII 22 

E. Monopoly and Combination (Continued) 

Clay, chapter VIII 22 

F. Monopoly 

Ely, pp. 190-200; 207-210 23 

G. Trusts and Combinations 

Ely, pp. 230-247 23 

V. MONEY AND BANKING 

A. Money 

Clay, chapter IX 24 

B. Money 

Ely, chapter XIV 24 

C. Banking and Credit 

Clay, chapter X 26 

D. Credit and Banking 

Ely, chapter XV 27 

E. The Level of Prices 

Clay, pp. 195-203 29 

F. Other Problems in Money and Banking 

Ely, chapter XVI 30 

G. Unemployment and Overproduction 

Clay, chapter XIII 33 



CONTENTS ix 

VI. FOREIGN EXCHANGE AND INTERNATIONAL TRADE 

PAGE 

A. International Trade 

Clay, pp. 204-213 34 

B. International Trade 

Ely, chapter XVII 35 

C. Protection and Free Trade 

Ely, chapter XVIII 38 

VII. THE DISTRIBUTION OF WEALTH 

A. Distribution as an Economic Problem 

Ely, chapter XIX 42 

B. Wages 

Ely, chapter XXI 44 

C. Wages 

Clay, chapter XVI 45 

D. Wages (Continued) 

Clay, chapter XVII 45 

E. Labor Problems 

Ely, chapter XXII 46 

F. Labor Legislation 

Ely, chapter XXIII 50 

G. The Rent of Land 

Ely, chapter XX 50 

H. Rent 

Clay, chapter XIX 52 

I. Rent (Continued) 

Clay, chapter XX 52 

J. Interest 

Ely, chapter XXIV 53 

K. Profits 

Ely, chapter XXV 54 

L. Interest and Profits 

Clay, chapter XVIII 54 

M. The Personal Distribution of Wealth 

Ely, chapter XXVI 55 

VIII. SELECTED ECONOMIC PROBLEMS 

A. Transportation 

Ely, chapter XXVII 57 

B. Insurance 

Ely, chapter XXVIII 58 



x CONTENTS 

PAGE 

C. Agricultural Problems 

Ely, chapter XXIX 59 

D. Socialism 

Ely, chapter XXX 60 

IX. PUBLIC FINANCE 

A. Public Expenditures 

Ely, chapter XXXI 62 

B. Public Receipts from Loans and Government Ownership 

Ely, chapter XXXII 62 

C. Public Receipts: Derivative Revenues, Fees, Special Assess- 

ments, and Taxes 

Ely, chapter XXXIII 63 

D Public Receipts: Federal, State, and Local Taxes 

Ely, chapter XXXIV 64 

X. A CRITIQUE OF THE PRESENT ECONOMIC SYSTEM 

A. The State and the Economic Organization 

Clay, chapter XXI 65 

B. The State and the Economic Organization (Continued) 

Clay, chapter XXII 65 

C. Wealth and Welfare— The Measure of Wealth 

Clay, chapter XXIII 66 

D Wealth and Welfare— Economic Influences on Welfare 

Clay, chapter XXIV 66 

E. Wealth and Welfare— Business and Morality 

Clay, chapter XXV 67 



PROBLEMS AND EXERCISES 

TO ACCOMPANY 
CLAY'S ECONOMICS FOR THE GENERAL READER 

AND 

ELY'S OUTLINES OF ECONOMICS 



PROBLEMS AND EXERCISES 

TO ACCOMPANY 

CLAY'S ECONOMICS FOR THE GENERAL READER 

AND 

ELY'S OUTLINES OF ECONOMICS 

I. INTRODUCTION 

A. Introductory 

Clay, Ch. I 

i. I. "Some study of Economics is at once a practical 
necessity and a moral obligation." Explain and illustrate each 
of these two points. 

2. 2. "We are seeking principles in our study of eco- 
nomic problems." Why? 

3. 3. "This is all right in theory but it won't work in 
practice." Explain what is meant. Show that this is an 
unfortunate statement. 

4. 4. "Explanation is not justification." Illustrate. 

B. The Nature and Scope of Economics 
Ely, Ch. I 

5. I. What is the objective point of the science of eco- 
nomics? Is it to teach individuals how to get rich? Discuss. 

6. 2. Did the rise in wages from 191 5 to 1920 indicate 
social improvement or the reverse? Did this wage increase 
mean a hardship to any one class? Explain. 

7. 3. "Our economic society is an evolutionary 

1 



2 PROBLEMS AND EXERCISES IN ECONOMICS 

product." What is the significance of this statement to stu- 
dents of economics? 

8. 4. "If the supply of an article is reduced the price of 
that article will tend to rise." Is this an economic law ? Cite 
three statutory laws that deal with economic phenomena. 

C. The Characteristics of the Present Economic 

System 

Ely, Ch. II 

9. I. Does the State participate in economic activity to 
a greater or a less degree than it did thirty years ago? Ac- 
count for the change if any. 

10. 2. "The degree to which the division of labor (spe- 
cialization) is carried depends upon the extent of the market." 
Is this true ? Discuss. 

11. 3. What does Ely mean by exclusive control in his 
definition of private property ? Does he mean that the State is 
excluded from control ? Explain. 

12. 4. Give several illustrations to show the distinction 
between negative and positive freedom. 

13. 5. "The automatic character of the present industrial 
system manifests itself thru competition." Explain. 

14. 6. Is there any competition between book publishers 
and automobile manufacturers? Theatre managers and hat 
manufacturers ? Physicians and music teachers ? Explain. 

15. 7. Account for the tendency toward monopoly. 

D. The Evolution of Economic Society 
Ely, Ch. Ill 

16. 1. Account in a general way for the fact that the ar- 
rangements under which society makes its living change from 
time to time. 



INTRODUCTION 3 

17. 2. Why did the feudal (manorial) system give way to 
the gild system ? The gild system to the domestic system ? 

18. 3. Have we anything in our economic system today 
that is mercantilistic ? Explain. 

E. The Evolution of Economic Society (Continued) 

Ely, Ch. IV 

19. 1. Just what was the industrial revolution? When 
did it take place ? 

20. 2. Were the mechanical inventions at all responsible 
for the demand that government restrictions on industry 
should be withdrawn? Discuss. 

21. 3. Argue that the policy of laissez-faire was more 
justifiable before than after the industrial revolution. Did 
Adam Smith's advocacy of liberty precede or follow this 
revolution ? 

22. 4. Does the policy of laissez-faire prevail with us 
today? Illustrate. 

F. The Economic Development of the United States 

Ely, Ch. V 

23. 1. Argue that sectionalism has been well nigh in- 
evitable in the U. S. May we expect more or less sectionalism 
in the future than we have had in the past? Why? 

24. 2. What is our population according to the 1920 cen- 
sus? Compare the increase during the last decade with the 
increase for the preceding decades. 

25. 3. Is the movement to the city due to economic fac- 
tors ? Discuss. 

26. 4. What are the economic and the non-economic fac- 
tors in the negro problem ? In the immigration problem ? 



4 PROBLEMS AND EXERCISES IN ECONOMICS 

27. 5. What are the terms of the immigration law effec- 
tive July 1, 1 92 1? Account for the passage of this law. 
What arguments were urged against its passage ? 

G. The Economic Development of the United States — 

(Continued) 

Ely, Ch. VI 

28. I. Why did the laws restricting industrial activity 
fail dismally in the American Colonies ? 

29. 2. "The industrial change which was a revolution in 
England was an evolution in America." Account for this 
difference. 

30. 3. Have we in America suffered any from the factory 
system? Discuss. 

31. 4. How has the corporation worked toward the con- 
centration of industrial control? 

32. 5. Distinguish between centralization and integration 
of industry. 

33. 6. Discuss the advisability of maintaining a laissez- 
faire policy in regard to transportation. 

34. 7. Note Ely's statement at bottom of page 94. Do 
you agree? Discuss. 

H. Elementary Economic Concepts 
Ely, Ch, VII 

35. 1. Have you ever engaged in economic activity? If 
so, what motive, or motives, prompted you to do so ? 

36. 2. Make a list of the motives to business activity that 
perhaps characterize (a) a student canvasser; (b) a college 
graduate entering a profession; (c) a manufacturer; (d) an 
actor; (e) an unskilled street laborer. 



INTRODUCTION 5 

37. 3. What motives to business activity are most 
worthy; least worthy? 

38. 4. "A leading motive to the economic activity of the 
rich man in business is the desire to win the game.' , Do you 
agree? If so, do you believe that this should be added to 
Ely's list? 

39. 5. "Economic goods are those in the use of which 
society must economize. " Do you accept this as sound? 
Compare with Ely's definition. 

40. 6. Show that waiting is involved in the production 
of a pair of shoes. 

41. 7. Name a good the production of which involves 
but little risk; one that involves considerable risk. Is the 
risk in the second one usually eliminated by insurance? 

42. 8. "Wealth consists of material things. A property 
right is the liberty to enjoy benefits of wealth." 

a. How does this terminology compare with Ely's 
terminology on page 109? 

b. If a government bond were destroyed, would the 
wealth of the country be reduced? A farm mortgage? 
A share of stock in the Big Four Railroad? 

c. Is there any reason for not taxing both a farm and 
the mortgage held against it? Both a corporation's 
plant and the shares of its capital stock held by the 
owners ? 

43. 9. May a violin be both a production good and a 
consumption good? Explain. 

44. 10. Give illustrations of each of the categories indi- 
cated in Figure 1 , page 1 1 1 . 

45. 11. Explain the point, page 113, in regard to the 
inclusion of railways in the estimation of national wealth. 

46. 12. Is the production of an automobile truck an ad- 
dition to the national income or to the national product? 



II. THE PRODUCTION AND CONSUMPTION OF 

WEALTH 

A. The Circulation of Wealth 

Clay, Ch. XII 

47. 1. "The immediate test as to whether an article or a 
service is wealth is, does it command a price." Is this state- 
ment in agreement with Clay? Discuss. 

48. 2. What is the test as to whether one is at all para- 
sitic economically? Illustrate. 

49. 3. Why speak of the value of a house as "so many 
years purchase of the rent it will yield?" 

50. 4. Show the effect upon the demand for farm 
products of an increase in the efficiency of coal miners; the 
effect of an increase in the supply of farm products upon the 
demand for coal in manufacturing industries. 

51. 5. "Supply is demand, demand is supply." Explain. 

52. 6. If we should cease to employ domestic and per- 
sonal servants, what would be the long time effect upon the 
volume of employment? The short time effect? 

53- 7- "Opposition to the introduction of labor saving 
machines is not due to the possible long time effect, but to 
the possible short time effect." Is this, sound? Explain. 

54. 8. "The introduction of machinery tends to be to the 
immediate advantage of the employer; the immediate disad- 
vantage of the employee ; the ultimate advantage of the entire 
society." Is this sound? Explain. 

6 



WEALTH PRODUCTION AND CONSUMPTION 7 

B. Production 
Ely, Ch. VIII 

55. 1. "The only real producers are the miners, lumber- 
men, and farmers ; for they are the only ones who add some- 
thing to the total wealth." Show that there is no essential 
difference in the contribution of the farmer, the miller, the 
baker, the grocer, and the delivery man. — T. 

56. 2. A country inn-keeper hires a man to cripple the 
automobiles of the passers-by. Is this man a producer? 

57. 3. "The car company was not responsible for the 
accident, but I got $800 damages for my client. I kept 
$400." — A lawyer. Did the lawyer render productive services 
in pleading this case? Discuss fully. 

58. 4. Show that most of the productive work in a 
community must result in social service. 

59. 5. "Capital is the product of labor and nature, so it 
should not be said to be an independent factor." Discuss. 

60. 6. Did we abstain (postpone consumption) when we 
constructed the Panama Canal? If so, from what? 

61. 7. "The common pursuit of forestry as a private 
business almost had to wait until capital became relatively 
very abundant." Why should this be true of forestry more 
than of wheat raising? What is the meaning of "capital" 
in this statement? — T. 

62. 8. How are the relative amounts of labor that are 
devoted to producing bread and the equipment for producing 
bread determined? What would happen if we should tend 
to have relatively too much of the one and too little of the 
other ? 

63. 9. Select three illustrations of the localization of 
industry from the list given on pages 128 and 129 and specify 
which of the causes are applicable in each case. 



8 PROBLEMS AND EXERCISES IN ECONOMICS 

C. The Division of Labor 
Clay, Ch. II 

64. 1. (a) Estimate the number of persons that have co- 
operated in the production of one suit of clothes. 

(b) Estimate the time which it would take you to 
make a suit if you were to do all the work alone. How 
long would it take you to earn enough money to buy a 
suit? 

65. 2. "By our planning the work minutely the laborers 
produce more than would otherwise be possible." — A manu- 
facturer. Is careful specification by the manufacturer thereby 
justifiable? Explain. 

66. 3. Specify in detail what gains might accrue from 
the combination of two furniture factories each employing 
400 men? What losses? 

67. 4. Should you expect the aeroplane and the wireless 
telegraph to influence the degree of specialization? Explain. 

68. 5. (a) "The political boundary lines in Europe are a 
great hindrance to the extension of the division of labor." 
Does this seem to be reasonable? Explain. 

(b) If each one of our states were a separate nation, 
would we be likely to have less specialization than we 
have today? Explain. 

69. 6. What tends to be the effect of harbor facilities, 
steamships and cables upon specialization? The effect of a 
protective tariff? Explain. 

D. The Organization of Production 
Clay, Ch. Ill 

70. 1. Contrast the method of co-ordinating the various 
specialists in our industrial system with the method of co- 
ordinating the various specialists in a drafted army. 



WEALTH PRODUCTION AND CONSUMPTION 9 

71. 2. "This firm pays its laborers 80 cents an hour and 
charges its customers $1.50 an hour for the laborer's services. 
It either underpays the laborers or overcharges the cus- 
tomers." Discuss. — T. 

72. 3. Argue that the presumption is that the existing 
middlemen are (1) performing a necessary function, (2) at a 
reasonable cost to consumers. If they are not, what would 
tend to happen ? 

73. 4. Why doesn't the farmer sell his produce to the 
consumer? Why doesn't the grocer buy directly from the 
farmer? Why don't the manufacturer and consumer work 
together to eliminate the middleman? 

74. 5. Name an "organizer" who was appointed by the 
government; one who has appointed himself. Can one who 
is the organizer of an industry because of inherited wealth 
or family connection be said to be self-appointed? Discuss. 

75. 6. It is sometimes said that the appointment of rela- 
tives to positions of responsibility by the head of a business 
tends to reduce the efficiency of the labor force. Is there any 
reason why this should be true? 

E. Consumption 
Ely, Ch. IX 

76. I. A householder has six tons of coal in his base- 
ment. The price of coal becomes nine dollars per ton. Under 
what conditions will he sell a ton? Buy a ton? Buy three 
tons? 

77. 2. A farmer has thirty bushels of potatoes. Show 
that the lowest price at which he will sell a bushel represents 
the marginal utility of a bushel of potatoes to him. 

78. 3. Explain in terms of this chapter the fact that 
air is essential to life and yet without value. 

79. 4. "I cannot now afford to keep a servant." — A 



io PROBLEMS AND EXERCISES IN ECONOMICS 

housewife. Restate this using the term "utility." This con- 
dition may have been brought about by a rise in the wages 
of servants or by a reduction in the income of the housewife. 
Is the value principle the same in either case? 

80. 5. (a) One is to spend 70^ for a meal at a cafeteria. 
Discuss the conduct of this person as he is making his selec- 
tion, using the terms "utility" and "marginal utility." 

(b) If he has $3.50 to begin with, discuss his 
conclusion to spend 70^ for dinner using the terms 
"utility" and "marginal utility." 

81. 6. Explain in terms of this chapter the advisability 
of carefully apportioning one's income in advance of its re- 
ceipt. Is this inadvisable for any reason ? 

82. 7. "The cost of waging war is the utilization of labor 
services and raw materials." Is this true? At what time are 
these furnished? Would the cost of the late war be altered 
if all the government bonds which were issued should be 
repudiated? Explain. 

83. 8. "Bonds which were issued to get money with 
which to construct the Panama Canal are still unpaid." Argue 
that this does not mean that the cost of building the canal 
was shifted to a later generation. 

84. 9. Number 5, page 149 in Ely. 

85. 10. "Those who speak of diamonds having no use 
value, and of food having infinite use value, must be drawing 
their ideas not from the lives of men but from the life of 
cattle." Smart, Theory of Value, p. 22. Compare this state- 
ment with the quotation from Adam Smith in problem 6, 
page 149 in Ely. 



III. VALUE AND PRICE 

A. Value and Price 
Ely, Ch. X 

86. I. Illustrate the dependence of individual welfare 
upon price relations by noting the effect of possible changes 
in certain prices upon farmers, unskilled laborers, professional 
men, and employers. 

87. 2. What are the principal factors that are tending to 
make our markets world-wide? What forces operate to 
check this tendency ? 

88. 3. "A man does not spend a dollar for one good 
when he would rather spend it for some other good." Is 
this similar to the point made by Ely on page 157? Explain. 

89. 4. If the price of wood were $18 per cord, 200 cords 
would be bought. If the price were $12 per cord, 320 cords 
would be purchased, and if the price were $8 a cord, 440 
cords would be taken. Construct a diagram, similar to the 
one on page 158, to show these facts. 

90. 5. If the number of cords of wood that would be 
purchased at the prices indicated in the above problem were 
200, 300, and 400 respectively, would there be greater or less 
elasticity in the demand for wood than when the purchases 
would be as first indicated. 

91. 6. Is the demand for table salt more or less elastic 
than the demand for carrots? Draw curves to illustrate the 
demand for each. 

11 



12 PROBLEMS AND EXERCISES IN ECONOMICS 

92. 7. Explain the fact that it may be to the economic 
advantage of cotton growers to destroy part of the cotton 
crop. Illustrate this point by means of a demand curve. 

93. 8. If the price of wood were $18 per cord, 400 cords 
would be sold. If the price were $12, 320 cords would be 
sold; if $8, 100 cords would be sold. Construct a diagram 
similar to the one on page 163 to show these facts. 

94. 9. Combine the diagram just drawn with the diagram 
for problem 4 above, into a diagram similar to the one on page 
164. What sum of money will be represented by the area 
APMO? 

95. 10. If the number of cords offered for sale were 400, 
350 and 280 at the prices indicated in problem 8, would the 
supply be more or less elastic than if the first set of figures 
indicate the state of the market? Draw a curve to show this 
supply. How does it compare with the curve drawn in 8 ? 

96. 11. Assume the following supply and demand 



schedule : 










Supply 


Price 


Demand 




13,000 


$9 


1,000 




11,000 


8 


3,000 




8,000 


7 


6,000 




7,000 


6 


7,000 




3,000 


5 


8,000 




1,000 


4 


9,000 







3 


10,000 



a. What price will be set? Why? Show that the 
price could not be other than this so long as the conditions 
of supply and demand are as indicated. 

b. Draw a diagram similar to the one on page 164 
to show the facts indicated by this schedule. What sum 
of money will be represented by the area APMO? 

c. If the prices at which the various increments of 
supply will be offered for sale represent the cost of 
producing the various increments, what area in tne dia- 
gram will indicate cost? Profit? 



VALUE AND PRICE 13 

d. If the demand should increase by one-third at 
each figure, what price would be set? A larger amount 
would be supplied then, but would the supply curve be 
altered ? 

e. If the conditions back of supply should be altered 
so that 8,000 units were offered at $5, buyers would take 
8,000. Could it properly be said that the demand curve 
had changed? Explain. 

97. 12. "During the war the demand for houses exceeded 
the supply." Explain this statement. Show that it is mean- 
ingless unless a certain assumption is made. 

B. Value and Price (Continued) 
Ely, Ch. XI 

98. 1. Show just why it is that the price of lead pencils 
tends to equal the expense required to produce them. Under 
what condition might price be above expense for a short time ? 
For a long time? Below expense for a short time? Could 
the price of lead pencils be below the expense of production 
for a long time? Could the price received for hotel service 
be below the expense of furnishing such service for a long 
time ? Explain. 

99. 2. If the price of a particular product is below ex- 
pense of production, why is it not necessary for many pro- 
ducers to withdraw from this field? 

100. 3. How are the wages in the skilled trades kept ap- 
proximately equal? The earnings of professional men? 

1 01. 4. "We may expect the price of meat to increase 
steadily." Why? 

102. 5. Draw a curve to represent an increasing expense 
good; a decreasing expense good; a constant expense good. 
Draw demand curves upon these supply curves and note the 



14 PROBLEMS AND EXERCISES IN ECONOMICS 

effect upon price in each case if demand should increase, that 
is, if the demand curve should shift to the right. 

103. 6. Put the facts that are indicated in the diagram 
on page 176 in the form of a supply schedule (see problem 
1 1 in the set above) . 

104. 7. "We can only afford to pay twenty cents per unit 
for the first fifteen units produced each day, but we can 
afford to pay twenty-five cents per unit for additional units." — 
A manufacturer. Why is this true ? 

105. 8. What items determine the fixed expense in the 
operation of a given number of street cars each day? The 
variable expense? 

106. 9. "I was the first manufacturer in the United States 
to adopt the idea of dumping surplus goods upon the foreign 
market. Thirty years ago I was not making money. My 
manufacturing plant was not running to its full capacity. I 
couldn't find a market for my products. . . . My experts 
figured that it would increase our cost 2% to increase our 
production 25%. On this basis I sent a man to Europe, who 
sold lamps there at a price less than the cost of production 
in Europe." — Thomas A. Edison, quoted in the Wall Street 
Journal, December 20, 191 1. Explain the difference between 
the increase in cost and the increase in output. Argue that it 
was to the advantage of American consumers to have Edison 
sell lamps abroad at a price below the price charged in America 
for similar lamps. 

107. 10. Argue that it is to the advantage of householders 
that electric light plants should furnish current to industrial 
plants at a rate below that charged to householders. 

108. 11. Name two goods that differ greatly in the degree 
to which the expense of their production is a fixed rather 
than a variable expense. In the case of which of these will 
the selling price more nearly correspond at all times to the 
total expense of production? Why? 



VALUE AND PRICE 15 

iog. 12. a. What is the normal price of cotton fiber and 
cotton seed? 

b. If the price of cotton seed oil should rise, what 
would tend to be the effect upon the price of cotton 
fiber? Why? 

c. If the cost of raising cotton should increase what 
would determine the relative effect of this upon the price 
of cotton fiber and cotton seed? Explain. 

no. 13. Should one say that two books published by 
one company are produced at joint expense? That the lamps 
sold by Edison in Europe and those which he sells here are 
produced at joint expense? 

in. 14. What would tend to be the effect upon the price 
of beef of a customs duty on the import of hides high enough 
to discourage their importation? Explain. 

112. 15. One hundred ladies' suits which are now out of 
style remain unsold. 

a. What will determine their price if the stock is 
divided among competing merchants? 

b. Will the cost that was incurred in producing them, 
or the cost that would be incurred in producing others 
like them, determine the price? Will it influence the 
price ? Explain. 

113. 16. There are a fixed number of building sites within 
a mile of the University campus. What determines the vari- 
ous rental prices that are placed upon these sites ? Is the cost 
of producing them an item? If an additional tax should be 
levied upon these lots would the rental prices be altered 
thereby ? Explain. 



16 PROBLEMS AND EXERCISES IN ECONOMICS 

C. Monopoly Price 

Ely, pp. 189-190; 201-207 

114,. I. "The power of the monopolist resides in his 
power to limit supply." Is this sound? Discuss. 

115. 2. What are the objections to monopoly? Specify 
carefully. 

116. 3. (a) Draw a supply and a demand curve using the 
data in the table at the top of page 202. 

(b) What would be the price under competition? 
Under monopoly? 

(c) Draw area (1) on your diagram to show mon- 
opoly profit. 

(d) Draw a supply curve (2) on your diagram to indi- 
cate conditions after a tax of one cent per unit is 
imposed. Draw area (3) to show monopoly profit after 
this tax is imposed. What will the price be then ? 

(e) Draw areas upon your diagram to show that a 
fixed tax upon the monopoly will not lead to a change 
in price. 

(f) What would be the effect upon the original mo- 
nopoly price if a tax of 20% were levied upon the mo- 
nopoly profits? Explain by reference to your diagram. 

117. 4. Draw a supply curve and upon it draw two de- 
mand curves (1) and (2) making (2) represent a demand 
much less elastic than (1). Draw areas to show monopoly 
profits if demand is as indicated by (1) ; by (2). 

118. 5. Do you agree with Ely that the class prices 
charged by the American railroads is an example of monopoly 
prices? Would this practice prevail among competing roads? 
Does it differ essentially from the practice of certain hotels 
in charging different prices for food in different dining 



VALUE AND PRICE 17 

rooms? From the practice of furniture firms in charging 
different prices for different styles or kinds of furniture? 

119. 6. Do a surgeon's charges illustrate the class price 
principle? A book publisher's prices? 

D. Value 
Clay, Ch. XIV 

120. 1. Why does Clay discuss "the problem of value" 
rather than the problem of price? 

121. 2. In what kind of a society should you expect all 
economic goods to exchange for each other in proportion to 
their labor cost? 

122. 3. Why has the argument of the exponents of the 
labor theory of value necessarily become a circle ? 

123. 4. How have the advocates of the cost of produc- 
tion theory of value measured cost? By taking cost of pro- 
duction to the most efficient producer, the least efficient pro- 
ducer, or the producer of average efficiency? Discuss. 

124. 5. Argue in support of the proposition that an in- 
crease in cost of production influences price through decreas- 
ing supply as compared with what it was or would otherwise 
have been. 

125. 6. If the cost of manufacturing a certain grade of 
cotton cloth is increased by the imposition of a tax of two 
cents per yard, will price tend to rise? Explain. 

126. 7. If the most efficient manufacturers of cotton cloth 
are making 25% upon their investment, and the least efficient 
or marginal producers are making 7%, will the price of 
cotton cloth tend to rise if the government, through taxation, 
confiscates all profit above 20% ? Explain. 

127. 8. "The excess profits tax law was enacted in Oc- 
tober, 191 7. When did the marked rise in prices begin? The 
tax was greatly reduced in 1919, yet prices went on increas- 



18 PROBLEMS AND EXERCISES IN ECONOMICS 

ing until they stood at 238 in December as compared with 
prices at 100, in 191 3, and at 266 in April, 1920. They began 
falling in the summer of 1920 without any further change 
having been made in the excess profits tax. Facts thus bear 
out the abstract reasoning of the economists." Develop the 
argument that excess profits taxation will not increase prices. 

128. 9. What is the circle in the cost of production 
theory? How does Clay break it? 

129. 10. What are the real costs of building a house? 

E. Value (Continued) 
Clay, Ch. XV 

130. I. Which is of the more importance in the construc- 
tion of a house, rough boulders for the foundation or a name 
plate for the door? Account for the relative prices of a 
boulder and a name plate? 

131. 2. Why does the labor service of a coal miner sell 
for so much less than the labor service of a mining engineer? 

132. 3. The price of oranges is five cents apiece. 

a. Show how marginal utility of oranges comes to be 
five cents to all users. 

b. Show how the actions of buyers may make the 
price and the marginal utility of oranges ten cents ; four 
cents. Will the marginal cost of oranges change ac- 
cordingly ? Explain. 

c. Show how the actions of sellers may bring about 
similar changes in price and marginal utility. 

F. Speculation and Price 
Clay, Ch. IV 

133. 1. Assume that the price of wheat is $1.50 in No- 
vember and that it will be $2.00 in January if speculators 
remain out of the market. Draw a supply and demand curve 
to show the first price ; one to show the second price. Draw 



VALUE AND PRICE 19 

additional curves to show how speculative dealing will raise 
the price in November and lower the price in January. 

134. 2. What are the characteristics of the speculator who 
is a public benefactor? Of one who is not? 

tSS- 3- A miller buys 10,000 bushels of wheat at $1.00 in 
October to grind into flour, expecting to market the flour in 
December. The cost of carrying the wheat during this milling 
period is three cents per bushel. 

a. What risk does the miller run if he is unable to 
sell his flour in advance ? How will the speculative wheat 
market enable him to escape this risk? 

b. We should expect the October price of December 
wheat to be $1.03. Why? 

c. If the miller sells short 10,000 bushels of wheat 
at $1.03 for December delivery will he gain or lose on 
this "future" transaction if wheat is $1.08 in December? 
How much? 

d. Will he gain or lose on his flour if the price of 
wheat is $1.08 in December? How much, assuming that 
the price of flour follows the price of wheat closely? 

e. Argue that speculation as illustrated here tends 
to lower the price of flour. 

136. 4. It has been said that the chief functions of special- 
ization are: (1) to establish proper price; (2) to secure the 
bearing of the risk burden in the easiest and cheapest way. 
Show how each of these ends is secured. — T. 

137. 5. Does stock exchange speculation in automobile 
stocks tend in any way to lower the prices of automobiles? 
Explain. 

138. 6. A man buys a parcel of land for $11,000. He 
sells it the following year for $30,000. Is it socially justifiable 
that this man should make this gain on this transaction ? Was 
his action a service? Discuss. 

139. 7. Why is gambling socially pernicious? 



IV. THE ORGANIZATION OF BUSINESS 
ENTERPRISE 

A. Capital and Its Organization 
Clay, Ch. V 

140. I. According to Clay's definition are the following 
capital : a factory building, the land on which it is built, an 
auto truck, a pleasure car, a dwelling house, a lawn, house- 
hold furniture? Which of these does the usual business 
man designate as capital ? 

141. 2. How could you assist in the accumulation of 
capital? How could our society further encourage the ac- 
cumulation of capital? 

142. 3. X and Y form a corporation putting in $5,000 
each. The business fails with assets of $6,000 and debts of 
$13,000. How much do X and Y lose? The creditors? Is 
it right that the creditors should lose so much, especially if 
X and Y are rich and the creditors are poor? Discuss. 

143. 4. Is preferred stock more like common stock or 
bonds ? Explain. 

144. 5. What service is rendered by a stock broker? 
Explain. 

B. Business Organization: The Corporation 
Ely, pp. 212-230 

145. 1. "The assets side of a balance sheet shows the 
actual wealth that is owned or controlled by the business unit. 

20 



ORGANIZATION OF BUSINESS ENTERPRISE 21 

The liability side of a balance sheet shows the ultimate owner- 
ship of the assets." Is this statement in accord with Ely's 
statement ? Explain. 

146. 2. Why are the two sides of a balance sheet always 
exactly equal? Could they be different? Explain. 

147. 3. How would the balance sheet on page 213 be 
altered : 

a. If a fire should destroy $20,000 worth of unin- 
sured goods ? 

b. If $10,000 of accounts receivable should prove to 
be worthless. 

c. If this concern should reduce the profit account by 
$20,000 and increase the capital account by $20,000, 
would this mean over-capitalization? Explain. Would 
the stockholders receive an "income" as a result of this 
change ? 

d. If this concern should make $17,000 how would 
the balance sheet be affected? 

e. Suggest a change in the balance sheet that would 
show over-capitalization. 

148. 4. The X Y Street Railway Company invested 
$500,000. The yearly net income was $80,000. The com- 
pany then increased the capital account from $500,000 to 
$1,000,000. Was this a case of over-capitalization? Why 
should the company wish to thus increase its capital account ? 

149. 5. "Rates must be increased, as we must earn 7% 
upon our capital." "Yes, but a large part of that capital is 
'water/ " Explain what is meant. 

150. 6. "This brick manufacturing company is greatly 
over-capitalized, and as a result we must pay more than we 
should for brick." Explain the reasoning by which this con- 
clusion was reached. Is it sound ? Explain. 



22 PROBLEMS AND EXERCISES IN ECONOMICS 

C. Competition and Association 

Clay, Ch. VI 

151. 1. Explain the competition between the manufacture 
of paper-weights and the manufacture of ear rings? 

152. 2. Is competition wicked? Is there competition 
among the members of a football squad? The members of a 
missionary society? Can you think of a social organization 
in which there would not be any competition? 

153. 3. "Employers' association are for the purpose of 
restricting competition in the purchase of labor; trade unions 
are for the purpose of restricting the sale of labor." Are 
either of these purposes justifiable? Discuss. 

154. 4. The opposite of "competitive" in the phrase "com- 
petitive system" is "bureaucratic." Explain. 

D. Monopoly and Combination 

Clay, Ch. VII 

155. I. Contrast the railroad industry and the clothing 
manufacturing industry in respect to the tendency toward 
monopoly. 

156. 2. Why does the absence of competition make gov- 
ernment regulation or ownership necessary? 

157. 3. Is the point made at the bottom of page 132 and 
the top of page 133 sound? Discuss. 

158. 4. "The success of government enterprise depends 
upon the character of the citizens." Do you agree? Discuss. 

E. Monopoly and Competition {Continued) 
Clay, Ch, VIII 

159. 1. Of the goods and services of goods that you pur- 
chase how many are monopolized? Account for the monop- 



ORGANIZATION OF BUSINESS ENTERPRISE 23 

olization of the ones that are monopolized ; for the lack of 
monopolization of the others. 

160. 2. List the social advantages of monopolistic com- 
binations ; the social disadvantages. 



F. Monopoly 
Ely, pp. 190-200; 207-210 

161. 1. Is there a place in the classification on page 195 
for monopolies due solely to capitalistic control, as in the 
case, say, of a monopoly of the cracker industry? 

162. 2. Number 6, page 210 in Ely. 

163. 3. What are the objections to monopoly from the 
point of view of consumers? Of possible producers? Does 
the effective regulation of a monopoly by the government pro- 
tect the interests of consumers? Of possible producers? 
Discuss. 

G. Trusts and Combinations 
Ely, pp. 230-241 

164. 1. Explain the difference from the point of view of 
"restraint of trade" between a trust and a holding company. 

165. 2. "It is one of the significant facts of modern busi- 
ness that a financier can control more industries than he could 
possibly buy. With a fortune of $160,000,000 he may be 
able to control plants that could not be purchased for less 
than $500,000,000." Show how this is possible. 

166. 3. Suggest some of the problems that would arise if 
we were to allow, or encourage, the monopolization of sugar, 
oil, and tobacco and then subject the monopolies to government 
control. 



V. MONEY AND BANKING 

A. Money 
Clay, Ch. IX 

167. I. Why is gold well suited to serve as money? In 
what way, if any, are each of the following commodities 
inferior to gold as a monetary medium: wheat, cotton, dia- 
monds, iron, copper, silver? 

168. 2. What is a dollar? A sovereign? 

169. 3. How is the price of gold determined? 

170. 4. What would tend to happen if our one-cent coins 
were made legal tender in unlimited amounts and were freely 
coined ? Why ? 

171. 5. If under a bimetallic system the relative weights 
of a silver dollar and a gold dollar are as sixteen to one (16:1) 
while the relative values are as fifteen is to one (15 :i), which 
metal will be overrated ? Which coin will be used in debt pay- 
ments? Why? Which one will become the actual monetary 
standard? Why? Answer similar questions if the relative 
values were as 17:1. 

172. 6. What is the inherent defect of bimetallism? 
Would international bimetallism tend to correct this ? Explain. 

173. 7. Why doesn't silver drive out gold in our country 
today ? 

B. Money 
Ely, Ch. XIV 

174. 1. "Free (unrestricted) coinage and unrestricted 
melting keep 23.22 grains of pure gold worth $1." Explain. 

24 



MONEY AND BANKING 25 

Are both free coinage and free melting necessary to maintain 
the parity of the standard money ? 

175. 2. Under what conditions would an American gold 
dollar of present weight and fineness be equal in value to 26 
grains of pure bullion? Explain. If these values were equal 
what circumstances other than government activity might 
make them unequal? Explain. 

176. 3. (a) What social benefit do the advocates of 
bimetallism expect from an adoption of their system? Ex- 
plain the process by which this benefit would be derived. 

(b) Assume that the present market ratio of silver to 
gold were 20:1 and that the government adopts bimetal- 
lism at the ratio of 19:1. How could you make this 
situation a source of profit to yourself? Explain clearly 
the course of action you would pursue in making this 
profit ? 

(c) Supposing that a large number of people were to 
adopt this opportunity for profit, what effect would their 
united action have upon (1) the production and con- 
sumption of gold? Explain. (2) The level of prices? 
Explain. 

177. 4. In the spring of 1920 a bill, known as the Mc- 
Fadden Bill, was introduced in Congress at the instigation of 
the American Mining Congress. It provided that a tax of 
fifty cents a pennyweight should be levied upon all gold used 
in industry, and that the proceeds should be used to pay to the 
producers of gold bullion a bonus of $10 per ounce on all gold 
produced up to 1925. If this bill had become a law what 
would have been the effect upon our monetary system? 
Discuss. 

178. 5. Note some of the probable consequences if our 
government had sought to finance the late war by issuing paper 
money. 



26 PROBLEMS AND EXERCISES IN ECONOMICS 

179. 6. What is the basis for the estimate that "the use of 
greenbacks increased the expense of the civil war by nearly 
$600,000,000" ? 

C. Banking and Credit 

Clay, Ch. X 

180. 1. "Credit economizes the use of money." Explain 
what is meant. 

181. 2. a. Just how can a bank that has $10,000 in cash 
loan $80,000? 

b. Why is it safe to do this? 

c. Under what conditions could it loan a still larger 
amount on a reserve of $10,000? Under what con- 
ditions could it safely loan without any reserve ? 

d. Should the amount which may be loaned in this 
way be specified by law? 

e. If the bank holds a large quantity of high-grade 
bonds, may it more safely keep a small reserve than if it 
has, instead, invested a similar amount in farm mort- 
gages ? Explain ? 

182. 3. What is a check? Why do most persons prefer 
to use checks in exchange transactions ? Why is it important 
socially that checks be used ? 

183. 4. a. Write out the substance of the bill drawn by 
the American wheat exporter which is referred to on page 175. 
Trace the course of this bill. 

b. Do the same for the bill purchased by the Ameri- 
can cloth importer. 

184. 5. Explain the steps by which bank A manufactures 
$7,000 credit for Mr. Z. 

185. 6. "Bank deposits are not usually created by the de- 
posit of money." Discuss. 



MONEY AND BANKING 27 

186. 7. What similarity, if any, is there between a bank's 
reserve and a merchant's till money? Explain. 

187. 8. "Commercial banking stands or falls, as to its 
social utility, with the merits or demerits of the business man's 
doings." — Taussig. Explain. 

188. 9. a. "The credit system enables one to secure an 
amount of purchasing power closely equivalent to the amount 
of wealth he possesses." Explain. Could one as well add, 
"or expects to possess?" Explain. 

b. "Credit is the machinery by which all forms of 
wealth may be coined into dollars." Explain and 
illustrate. 

D. Credit and Banking 

Ely, Ch. XV 

189. 1. The five banks of a small city brought to the 
clearing house one day the following claims: 

No. 1 against No. 2 against No. 3 against 

No. 2, $2,213.19 No. 1, $ 4,284.78 No. 1, $4,974.66 

No. 3, 1,865.09 No. 3, 2,172.45 No. 2, 1,607.79 

No. 4, 2,415.96 No. 4, 3,043.18 No. 4, 1,093.24 

No. 5, 512.21 No. 5, 655.87 No. 5, 625.88 

Total, $7,006.45 Total, $10,156.28 Total, $8,301.57 

No. 4 against No. 5 against 

No. 1, $ 3,078.73 No. 1, $ 332.15 

No. 2, 1, 793. 16 No. 2, 377-17 

No. 3, 973.73 No. 3, 1,51546 

No. 5, 4,633.96 No. 4, 181.56 



Total, $10,479.58 Total, $2,406.34 

a. Compute the balance for or against each bank. 

b. How much money was needed at the clearing house 
that day? 

c. How can you account for the condition shown by 
bank No. 5, namely, that bank No. 4 cashed so many 



28 PROBLEMS AND EXERCISES IN ECONOMICS 

checks drawn upon this bank, while the other banks 
cashed so few, and that it cashed but few for any of the 
other banks? From this showing, is bank No. 5 neces- 
sarily the smallest of the five banks? 

d. Show concretely the saving that results from the 
clearing house in this town of five banks. 

e. Is the amount of bank clearings a fair index of 
the prosperity of a community? Explain. — T. 

190. 2. a. How will the bank statement on page 288 be 
affected if X deposits $2,000 in gold? 

b. If Y cashes a $500 check drawn by X? 

c. If Z opens an account by depositing a $100 check 
written by X? 

d. If Z, wishing to borrow, gives his note for $300 to 
the bank and has this amount, less $2.45 interest, credited 
to his deposit account? 

e. If the bank spends $1,000 for bonds? 

f. If the bonds are later sold for $1,100? 

g. If Z pays his note at maturity? 

191. 3. A customer gives his note and opens a checking 
account. 

a. Show that if the bank should, instead of giving him 
a checking account, issue him due bills upon it (bank 
notes), the banking principle involved would be similar 
to that involved in establishing a checking account. 

b. In what way would the bank's notes be superior 
to checks as media of exchange? 

c. What element of danger is involved in allowing 
banks to issue their own notes? 

d. Should we impose reserve requirements in regard 
to notes ? Why ? 



MONEY AND BANKING 29 

192. 4. Show that the right to issue bank notes on the 
general assets of the bank would make the bank currency 
elastic. 

193. 5. Was the improvised currency that was issued dur- 
ing the panic of 1907 at all similar to bank checks? Why 
was it necessary to resort to this improvised currency? What 
was the Aldrich-Vreeland Act expected to accomplish? 

194. 6. The United States government abandoned the In- 
dependent Treasury system in the fall of 1920. It now de- 
posits its receipts of money in banks and checks on the same 
in payment of obligations. Suggest the advantages of the new 
method as compared with the former method. 

195. 7. What is the significance of the provision allowing 
the Federal Reserve Board to suspend the 40% reserve re- 
quirement for federal reserve notes and at the same time im- 
pose a tax upon the deficiency in the reserve ? 

196. 8. Describe and illustrate the process by which (1) a 
commercial transaction in Columbus gives rise to 30-day com- 
mercial paper; (2) this paper comes into the possession of a 
local national bank; (3) this bank rediscounts the paper at 
the Cleveland federal reserve bank; (4) the federal reserve 
bank sends federal reserve notes to the Columbus bank in 
payment; (5) the paper is taken up (paid) when due. How, 
if at all, will such payment affect the federal reserve bank if 
the federal reserve notes issued against the paper are out- 
standing at the time the paper is taken up ? Explain. 

E. The Level of Prices 
Clay, pp. 195-203 

197. I. Note the effect of the rising price level from 191 5 
to 1920 on property owners, owners of bonds and mortgages, 
employers, wage earners; the effect of falling prices since 
May, 1920. 



30 PROBLEMS AND EXERCISES IN ECONOMICS 

198. 2. a. What local price change followed the dis- 
covery of gold in the Klondike? Why? 

b. Trace the extension of the influence of this ad- 
dition to the gold supply. 
I 99« 3* ^ tfte annual production of goods should increase 
by 25 per cent, what effect would this tend to have on the 
price level if the amount of money and the frequency of its 
exchange should remain the same? 

200. 4. How does the extension of specialization tend to 
affect the price level? The extension of monopoly control? 
The reduction in the ratio of bank reserves to bank credit? 
Explain. 

F. Other Problems in Money and Banking 
Ely, Ch. XVI 

201. 1. Professor Irving Fisher gives the following data 
for the equation of exchange for 191 8 (American Economic 
Review, June, 19 19, p. 4°7) : 

M (money in actual circulation) 2.46 billion dollars 

V 30 

M' 12.5 billion dollars 

V 

The value of goods and services purchased — 1269 billion. 

Find Professor Fisher's figure for V which is omitted here. 

202. 2. If the amount of M should be doubled what effect, 
if any, would this tend to have on M'? V? V? T? P? 
Explain. 

203. 3. Trace the influence of $20,000,000 of gold that is 
imported from abroad. 

204. 4. Argue that one should expect purchases of articles 
made of gold to have increased during the past few years 
relative to the purchases of silver articles, silks, and satins. 



MONEY AND BANKING 31 

205. 5. The report of the Yukon Gold Company for 1919 
says: "The adverse conditions affecting gold mining gener- 
ally, referred to in the last two annual reports, still obtain, 
and the production from many low-grade mines has ceased 
entirely." What were the adverse conditions? 

206. 6. F. W. Parsons in the Saturday Evening Post for 
April 3, 1920, says: "In 1915 the total output of gold from 
all the mines of the world reached a maximum production of 
$469,000,000. By 19 1 8 the gold output had declined to $381,- 
000,000, — while in 1919 the best estimate places the gold pro- 
duction of the world at only $350,000,000." Explain the in- 
fluence of the high price level upon this decline in the produc- 
tion of gold and the effect of the decline in gold production 
upon the price level. 

207. 7. Fill in the blanks in the following: 

An increase in the production of gold tends to 

prices. This tends to the amount of gold 

used in the arts and to the amount of gold 

produced, thus tending to the price level. 

208. 8. List the advantages and disadvantages of the rise 
in the price level from 191 5 to the summer of 1920. Do 
likewise for the decline in prices that is now (1921) taking 
place. 

209. 9. Illustrate the effect of a rise in the price level 
upon creditors ; upon debtors. The effect of a fall in the 
price level upon creditors ; upon debtors. 

210. 10. Are the points under Crises applicable to the 
present (1921) business depression? Explain. 

211. 11. The Monthly Labor Review, October, 1920, 
page 41, gives data of food prices in Columbus, Ohio, among 
which are the following: 



32 PROBLEMS AND EXERCISES IN ECONOMICS 

Article Amount Price 

Aug. 15, 1919 Aug. 15, 1920 

Sirloin steak pound 39-3$ 43-3^ 

Butter pound 61.6 65.4 

Eggs, strictly fresh dozen 48.3 54.3 

Bread pound 10.2 1 1.9 

Potatoes pound 5.4 5.1 

Cabbage pound 6.4 3.5 

Sugar, granulated pound 10.9 22.5 

a. On the basis of these few items find the index 
number of prices for August 15, 1920, as compared 
with the prices for August 15, 1919, if each of these 
articles is given equal weight. 

b. Find the index number if these articles are as- 
sumed to represent proportionate parts of a family's 
expenditures for food as follows: sirloin steak 5, butter 
10, eggs 8, bread 10, potatoes 1.5, cabbage .5, sugar 4, 
and are weighted accordingly. 

212. 12. The Monthly Labor Review, October, 1920, page 

65, gives the following data as to the change in the cost of 

living from 1913 to June, 1920: 

Per cent of 

Per cent of increase from 1913 

total expenditures to June, 1920 

Food 38.2 119. 

Clothing 16.6 187.5 

Housing 13.4 34.9 

Fuel and light 5.3 71.9 

Furniture and furnishings 5.1 192.7 

Miscellaneous 21.3 101.4 

1 00.0 
Find the total per cent of increase weighting each item 
according to its importance in the family budget. 

213. 13. In determining changes in the cost of living, the 
United States Bureau of Labor Statistics weights the various 
articles of food according to their importance in the food 
budget but calculates the index number for clothing by 
giving all of the articles equal weight. Suggest an explana- 
tion for this practice. 



MONEY AND BANKING 33 

G. Unemployment and Overproduction 
Clay, Ch. XIII 

214. 1. Do we ever have unemployment because of gen- 
eral overproduction, or because of overproduction in certain 
industries ? Discuss. 

215. 2. Illustrate the various points in this chapter by 
reference to our experience during the present industrial de- 
pression (1921). 



VI. FOREIGN EXCHANGE AND INTER- 
NATIONAL TRADE 

A. International Trade 

Clay, pp. 204-213 

216. 1. In country X, wheat can be produced at a cost of 
one day's labor per bushel and knives at a cost of two days' 
labor per dozen. In country Y, the costs are respectively two 
and three days' labor. Prove in detail that exchange between 
X and Y will be advantageous to both. What law does this 
illustrate ? 

217. 2. Argue that it would be impossible for a country 
to be entirely deprived of its gold. 

218. 3. What is the fundamental reason for the rate of 
exchange between two gold standard countries ever being 
other than par? If the Atlantic Ocean were a narrow river, 
would the rate of exchange on London normally vary more, 
or less, from par than it does now? Explain. 

219. 4. What trade conditions tend to bring about a low 
rate of exchange on London? Why is it that this rate will 
not normally be less than $4.83? Why has the rate been 
less than this since 191 5? Does a low rate of exchange on 
London tend to stimulate our exports or imports ? Explain. 

220. 5. "Movements of gold as a result of a high or low 
rate of exchange tend to be self-corrective." Explain. 

34 



FOREIGN EXCHANGE AND TRADE 35 

B. International Trade 
Ely, Ck XVII 

221. 1. "We pay Brazil for our coffee by selling cotton to 
Englishmen." Explain. 

222. 2. "The rate of exchange in New York on London 
is determined by the supply of bills on London and the de- 
mand for bills on London." Will the following tend to raise 
or lower the rate of exchange on London in New York ? 

(a) An increase in exports of goods to England? 
To Italy? 

(b) An increase in the importation of goods from 
England? From Brazil? 

(c) European travel by Americans? 

(d) American travel by Europeans? 

(e) Borrowing abroad by selling American se- 
curities ? 

(f) Buying of postal money orders to be sent to 
Europe ? 

(g) An increase in the discount rate in London? 
In New York? 

223. 3. Exporters do not sell their claims direct to im- 
porters, they sell to middlemen. Who are the middlemen? 
Does the middleman sell the piece of paper which he receives 
from the exporter to the importer, or does he give him an- 
other piece of paper? If the latter, what does he do with the 
paper he buys from the exporter? 

224. 4. Write out the substance of the bill that the ex- 
porter sells to the exchange broker, and the substance of the 
bill that the importer buys. 

225. 5. If the exchange broken has exhausted his London 
balance, and is unable to buy exporters' claims, what must 



36 PROBLEMS AND EXERCISES IN ECONOMICS 

he do to replenish his balance so that he can sell drafts to 
importers? Then what price must he charge for his drafts? 

226. 6. "A country that produces gold tends to export 
more gold than it imports." Show how the production of 
gold leads to a rate of exchange that makes it profitable 
for bankers to ship gold abroad. 

227. 7. The course of exchange rates in New York for a 
few months during the winter of 1920-1921 was as follows: 

Par Nov. 16-Dec. 15 Dec. 16-31 Jan.3-8 Jan. 10-15 

London ... 4.8665 High 3.5300 3-5450 3.6550 " 37787 

Low 34075 34825 3.5387 3.6675 

Paris 1930 High .0626 .0612 .0601 .0620 

Low .0582 .0580 .0581 .0506 

Spain 1930 High .1350 .1390 .1340 .1360 

Low .1240 .1293 .1310 .1320 

a. Account for the change in London exchange from 
November to January 15; Paris exchange. 

b. Why was exchange on London and Paris so far 
below par ? 

c. Account for the difference between French and 
Spanish exchange. 

228. 8. During the fall of 1920 the London Times 
printed a table showing the following: 

Increase or decrease 

Increase or decrease percent required to 

COUNTRY in note circulation purchase £1 exchange 

for year on London 
(in£i,ooo's) Percent 

France + 112,564 +8 +48 

Italy + 221,248 +45 + IT 3 

Switzerland . . — 394 — 1 — 7 

Germany +1,545,244 +79 +111 

Portugal + 31,212 +54 +150 

Explain the causal connection between the change in notes 
outstanding and the change in exchange rates. 

229. 9. a. What should you expect to be the relation 



FOREIGN EXCHANGE AND TRADE 37 

between the goods exports and the goods imports of a 
country during the following periods: (1) When it is first 
open to settlement or to industrial enterprise; (2) when it 
has become quite well supplied with imported capital goods; 
(3) when its citizens begin to make investments in other 
countries ; and (4) when a relatively large amount of such 
foreign investments have been made? 

b. In which of these stages is the United States? 
England ? Mexico ? 

230. 10. "A favorable trade balance is an excellent sign 
of vigorous national life, and of a sound economic structure. 
It means that the nation is taking in more than it is paying 
out." — Strauss, Investor's Magazine, Dee. 1, 19 14. 

a. Do you agree with the first statement ? 

b. Illustrate this point by comparing our "favorable" 
with England's "unfavorable" balance of trade. 

c. State the various things that a favorable balance 
of trade may mean. 

231. 11. "There can be no national gain from domestic 
trade for what one person gains the other loses ; it is only 
by foreign trade that a nation can gain." Discuss. 

232. 12. During the first years of the Great War many 
persons rejoiced over the fact that we were "getting out of 
debt to Europe." 

a. How was this being accomplished? 

b. Argue that this may have been to our disadvantage. 
2 33« I 3- What are the advantages of having unrestricted 

(free) trade between the states of our union? Do the same 
considerations apply to the case of international trade? 

234. 14. Name several groups of persons in Ohio that 
suffer from our interstate trade. Would protection benefit 
them? Explain. 

2 35« l S- I nto what lines of industry do the productive 



38 PROBLEMS AND EXERCISES IN ECONOMICS 

forces of a community tend to go? Argue that the social 
interest is adversely affected normally by the giving of a 
government subsidy to some one kind of enterprise. 

236. 16. Show that a protective tariff is tantamount to a 
subsidy paid to certain producers from the proceeds of 
taxation. 

237. 17. "If we buy rails from England, we get the rails, 
of course, but they get our money ; while, if we buy rails at 
home, we have the rails and the money too." — A statement 
falsely credited to Lincoln. 

a. Is there any reason to expect that our buying 
rails in England would carry off our regular stock of 
money ? Explain. 

b. Should we regret such trading because it de- 
creases our stock of money, if that should result? 

c. Substitute "cotton" for "money" throughout the 
above quotation, and show the fallaciousness of the 
doctrine. — T. 

238. 18. "We spend thousands of dollars dredging har- 
bors, laying cables, and building ships in order that we may 
trade with foreign nations and then we put up a tariff 
barrier and stop the trade we make possible." Does a tariff 
thus negative the benefits which accrue from improvements 
in transportation? 

239. 19. A group of men in the United States argue in 
support of a merchant marine and of a high protective tariff. 
Show that they are inconsistent. 

C. Protection and Free Trade 
Ely, Ck XVIII 

240. I. Explain how, if at all, a protective tariff tends to 
promote nationalism. Has our protective tariff contributed 
to the development of Americanism? Would our spirit of 



FOREIGN EXCHANGE AND TRADE 39 

national unity be more intense if we stopped the importation 
of coffee, for example? Consider the case of free-trade 
England in this connection. 

241. 2. "The infant industries tariff argument presup- 
poses that the tariff will be temporary, but experience shows 
that such tariffs tend to be maintained after the industry is 
fully grown." Account for this tendency. 

242. 3. Show that the establishment of tariffs sufficient 
to "equalize costs of production" at home and abroad tend 
to stop all foreign trade. 

243. 4. Argue that it is on the whole better to pay a 
bounty from the proceeds of taxation to producers whom 
we wish to encourage than to impose a tariff. 

244. 5. Argue that the income of laborers in goods and 
services will be less under a policy of protection than under 
free trade. 

245. 6. "The true way to quicken foreign demand (for 
British goods) was to open the ports to that foreign supply 
with which they paid us for what they bought from us." — 
Morley's Gladstone, Vol. 1, p. 267. Show that the above 
is sound doctrine. — T. 

246. 7. The amount added to price by a tariff duty does 
not represent a social cost if the good can be produced with- 
out the tariff; but it does represent a social cost if the pro- 
tective duty is necessary to the production of the good. 
Show that this is true. Then is protection less objectionable 
when it is not needed? What is the objection to it in such 
a case? 

247. 8. "A reduction of $60,000,000 in tariff duties means 
a reduction in the burden upon the people's consumption of 
approximately $600,000,000." — Senator Newlands in the In- 
dependent, 73:757. Explain. 

248. 9. "To the same extent that the home market is 
wrested from foreigners and given to protected home pro- 



40 PROBLEMS AND EXERCISES IN ECONOMICS 

ducers, the foreign market is wrested from unprotected home 
producers." — Seager, p. 397. Show that this is necessarily 
true. — T. 

249. 10. "As a nation advances to the industrial stage that 
makes it an exporter of manufactured articles the manufac- 
turers tend to become advocates of free trade." Why? 

250. 11. The representatives of the national automobile 
chamber of commerce suggested before the House Ways and 
Means Committee in December, 1920, that the duty on high- 
priced foreign cars be reduced from 45 per cent to 30 per 
cent. They argued (1) that government revenue would be 
increased; (2) that foreign discrimination against American 
automobiles would be less likely; and (3) that foreign in- 
dustry would be assisted in reviving. Which of these argu- 
ments is the more significant? Are they sound? 

251. 12. If protection should be removed from a highly 
specialized industry that has long enjoyed protection, what 
would tend to be the immediate effect upon the wages of 
unskilled laborers employed therein? The long time effect? 
Upon the wages of highly trained specialists employed 
therein ? 

252. 13. An English pamphlet of the Liberal party says: 
"One of the most absurd posters issued by the British 
advocates of a protective tariff was one in which a British 
workingman was represented as saying: 'The foreigner has 
got my job.' That poster is a fraud. Rather we should say 
that it is the foreigner who provides jobs for British work- 
ingmen." 

Now, broadly speaking, neither of these statements is 
sound. The number of jobs — the amount of employment — 
would probably be substantially the same under protection as 
under free trade. The real advantage of free trade lies 
elsewhere. 



FOREIGN EXCHANGE AND TRADE 41 

a. Support the contention of the next to the last 

sentence. 

b. What is "the real advantage" referred to in the 

last sentence? — T. 

253. 14. "I believe in free trade; but I believe in fair 
trade still more. If other countries will not let us sell to 
them, I don't believe in letting them sell to us." 

What erroneous notion with respect to the reason for 
letting other countries sell to us does the writer of the above 
start out from? — T. 



VII. THE DISTRIBUTION OF WEALTH 

A. Distribution as an Economic Problem 
Ely, Ch. XIX 

254. 1. What are the "two kinds of distribution?" Illus- 
trate. What does the business man usually mean by dis- 
tribution? 

255. 2. How would the distribution of wealth in America 
tend to be affected by the imposition of a protective tariff 
on sugar ? By the levy of a sales tax as a substitute for the 
income tax? 

2 56. 3- "The problem of distribution is merely a series 
of price problems." Do you agree? Explain. 

257. 4. Assume that on a certain plot of land one man 
can produce 60 bushels of wheat, two men 140, three men 240, 
four men 330, five men 400, six men 450, seven men 480, 
eight men 490, and nine men 490. 

a. What is the point of diminishing productivity? 

b. How many men will the owner of this land em- 
ploy? Upon what will this answer depend? 

c. Construct a diagram similar to Fig. 1, page 391 to 
show the above facts. 

258. 5. a. If the price of wheat is $2.00 per bushel and 
the wages of farm labor $120.00 for the season, how many 
men will be employed on the above land? Explain. 

b. If the price of wheat should rise to $2.50 per 
bushel how many men would be employed if wages re- 
main as before? 

42 



THE DISTRIBUTION OF WEALTH 43 

c. If wages should rise to $150.00 while the price of 
wheat remained at $2.00? 

259. 6. What is meant by the marginal laborer? The 
marginal product of labor? Illustrate by using data from the 
preceding problem? 

260. 7. What profit would the owner of the above land 
make if conditions were as assumed in a of problem 5? 
b? c? 

261. 8. Approximately what sum of money will repre- 
sent the marginal product of agricultural labor in your State 
this coming season? How does this compare with the 
marginal product for 1918? Compare wages for these two 
years. 

262. 9. If the available supply is such that a farmer is 
free to rent as much land, hire as many tractors and imple- 
ments, and engage as many men as he desires, what will 
determine his expenditure in each of these lines in order that 
he may realize the largest possible profit ? Explain. 

263. 10. Illustrate the principle stated at bottom of page 
396 by reference to the grocery business. By reference to 
the manufacture of safety razors. What conditions may pre- 
vent the nice adjustment that entrepreneurs tend to make? 
Illustrate. 

264. 11. Explain the statement in the text that "marginal 
productivity is at the same time the cause and effect of wages, 
rent, and interest." 

265. 12. In the transport of coal from Cleveland to 
Detroit can Lake Erie be said to be productive? Explain. 
Is the Ohio river productive? Is the air that is so necessary 
to the operation of an engine productive? The coal used in 
the engine? 

266. 13. Show that one may be very productive while per- 
forming anti-social services. 

267. 14. "Each one tends to get the value equivalent of 



44 PROBLEMS AND EXERCISES IN ECONOMICS 

the product of the marginal producer of his class or group." 

a. Show that this is true. 

b. Show that this does not have ethical significance. 

B. Wages 
Ely, Ch. XXI 

268. I. "The wage of any class of labor is set, as is the 
price of wheat, at a point that will just clear the market.' ' 
Is this true? Discuss. Compare the terms marginal pro- 
ductivity of labor and marginal utility of wheat. 

269. 2. Name two lines of industry in one of which the 
demand for labor is more elastic than it is in the other. 
Account for the difference. 

270. 3. Does the temporary hardship to laborers result- 
ing from the introduction of labor-saving machinery help 
to account for the existence of trade unions ? Can you sug- 
gest any way of relieving labor groups who would suffer 
from the introduction of machinery from bearing this bur- 
den? Discuss. 

271. 4. Who is normally the better able to drive a good 
bargain, the man who has a commodity for sale or one who 
has labor service for sale; the one who wishes to buy labor 
service or the one who wishes to sell labor service ? Explain. 

272. 5. "The increase in population during the past one 
hundred years disproves the Malthusian theory and at the 
same time shows that there is truth in it." Explain. 

273. 6. Formulate the argument used to support the sub- 
sistence theory of wages. What difficulty have certain re- 
formers had to face in connection with this theory? 

274. 7. How does a high standard of living work toward 
an increase in wages? 

275. 8. The many statements which labor leaders have 
made since the close of the war to the effect that wages 
must not be lowered illustrate what point in the text? 



THE DISTRIBUTION OF WEALTH 45 

276. 9. Just how does it come about that, all other things 
being equal, the occupation that is agreeable pays a lower 
wage than the occupation that is disagreeable? Illustrate. 

277. 10. Explain how it is that the earnings in the skilled 
trades are kept nearly equal ; the returns in the professions. 

278. 11. Suggest a general program for our society that 
would tend to bring about a much greater degree of equality 
in the returns for labor service than now prevails. 

C. Wages 
Clay, Ch. XVI 

279. 1. List the various reasons why an increase in wages 
may reduce an employer's labor cost. 

280. 2. "In order that laborers may get the value equiva- 
lent of their marginal product it is not necessary that they 
have bargaining power equal to that of the employer. It is 
only necessary that there be keen competition between em- 
ployers." 

a. Give argument. 

b. If there were keen competition between employers 
would the weaknesses of laborers in bargaining that Clay 
mentions operate to the disadvantage of laborers? 
Explain. 

c. Is there keen competition between employers? 

281. 3. "The labor union is unamerican." What is 
meant? Is it more unamerican than an employers' associa- 
tion? Discuss. 

D. Wages {Continued) 
Clay, Ch. XVII 

282. 1. Formulate the exact statement of the wages fund 
theory; the inexact statement. 



46 PROBLEMS AND EXERCISES IN ECONOMICS 

283. 2. How was the wages fund theory used to combat 
trade unionism? Explain. 

284. 3. . "Wages depend upon the number of laborers in a 
given group." To what extent is this true? What de- 
termines the number of laborers in a given group ? 

285. 4. Why was Caruso's wage higher than that of a car- 
penter? Why does Babe Ruth get a larger wage than a 
surgeon? Why is a coal miner's wage higher than the wage 
of a ribbon clerk? 

286. 5. "Wages tend to equal the laborer's discounted 
marginal product." Explain the meaning and significance of 
each of the last three words in this formula. 

287. 6. Note the sentence in parenthesis in the footnote 
on page 304. Does Clay correctly state the "law" to which 
he refers? Explain. 

288. 7. The practice of many arbitrators in recent wage 
disputes has been to set wage rates at a point that would 
enable the laborers to meet the "cost of living." Can it be 
said that wages set in this manner tend to equal the "dis- 
counted marginal product" ? Discuss. 

289. 8. If the basic wage in the coal mining industry 
should be set at $12.00 per day, show that the "discounted 
marginal product" of the miners would tend to become $12.00 
per day. 

290. 9. Clay quotes Mills as assuming that an increase in 
wages must check the accumulation of capital. Give the 
argument. Point out the fallacy in the argument. 

E. Labor Problems 
Ely, Ch. XXII 

291. I. "The fundamental reason for the trade union is 
that laborers have the same desires and interests that em- 
ployers have." Develop the argument. Is it sound ? 



THE DISTRIBUTION OF WEALTH 47 

292. 2. "The American Association of University Pro- 
fessors is interested in salaries, protection against unwar- 
ranted dismissal, an extension of faculty control over uni- 
versity administration, and the promotion of good teaching 
and sound scholarship." Assuming this to be a correct state- 
ment, show the points of similarity of purpose between this 
organization and labor organizations. 

2 93- 3- Under what conditions is it to the advantage of 
the members of a trade union to extend the union member- 
ship? Under what conditions would extension of member- 
ship be disadvantageous? Which of these two sets of con- 
ditions is the more largely prevalent in American industry 
today ? Explain. 

294. 4. According to The Survey magazine of April 30, 
192 1, the New Jersey Chamber of Commerce in a survey of 
manufacturing establishments found the following nine 
varieties of open and closed shops : 

I. The non-union shop. 

1. Closed anti-union shop. 

2. Preferential anti-union shop. 

3. Open non-union shop without shop committee. 

4. Open non-union shop with shop committee. 
II. The union shop. 

5. Open indirect union shop. 

6. Open union shop. 

7. Preferential union shop. 

8. Closed union shop of an open union. 

9. Closed union shop of a closed union. 
Define each of these nine types. Why are the terms "open 

shop" and "closed shop" unsatisfactory? 

295. 5. In the issue of Jan. 15, 1921, The Survey published 
a statement by the Commission on Church and Social Service 
of the Federal Council of Churches. This statement which 
was very similar to a statement made by the Department of 



48 PROBLEMS AND EXERCISES IN ECONOMICS 

Social Action of the National Catholic Welfare Council was 
in part as follows : 

"The relations between employers and workers 
throughout the United States are seriously affected at 
this moment by a campaign which is being conducted for 
the "open shop" policy — the so-called 'American plan' 
of employment. These terms are now being frequently 
used to designate establishments that are definitely anti- 
union. Obviously, a shop of this kind is -not an 'open 
shop' but a 'closed shop' — closed against members of 
labor unions. . . . Many disinterested persons are con- 
vinced that an attempt is being made to destroy the or- 
ganized labor movement. Any such attempt must be 
viewed with apprehension by fair-minded people." 

Why should not employers advocate a "non-union shop" 
rather than an "open shop" if they wish to destroy trade 
unionism? Why use the term "American plan?" Why 
should this commission view with apprehension an attempt to 
destroy the unions? 

296. 6. President Grace of the Bethlehem Steel Corpo- 
ration testified in December, 1920, that is was the policy of 
his company not to sell steel to contractors who operate union 
shops. Is this policy in line with the principles of the "open 
shop?" Discuss the social advisability of this policy. 

297. 7. Show that the time lost as the result of a strike 
may be greatly in excess of the time lost by the persons on 
strike. Estimate the number of persons that are gainfully 
employed in the United States. How many men would have 
to be idle as a result of strikes each working day for a year 
to make the time lost equal the time lost as a result of one 
holiday? The number of persons unemployed now (May, 
1921) is variously estimated at from 3,000,000 to 5,000,000. 



THE DISTRIBUTION OF WEALTH 49 

How many days' labor would need to be lost as a result of 
strikes in order that the loss would equal the loss resulting 
from the unemployment of 2,000,000 men for a period of 
two months ? 

298. 8. How can men be prevented from striking in es- 
sential industries? By law? How enforce such a law? By 
the power of public opinion? How enlist public opinion? 
Must wages, hours, and working conditions appear to the 
public to be equitable ? 

299. 9. Mr. H. B. Endicott, senior member of the Endi- 
cott- Johnson shoe manufacturing company, said in an article 
in the New York Times of October 5, 1919, relative to labor 
councils within industrial establishments, "I do not see 
wherein they are of any good. ... It seems to me that the 
manager of the plant is pretty well informed as to what are 
the proper hours, wages, and conditions of labor. The fact 
that he has to have a council sit in with him and tell him 
what they are seems to prove that there is something radically 
wrong. If he is seriously interested in the happiness and 
well-being of his men he will do the right thing by them 
irrespective of a council or not." Substitute a few words 
to make this a statement that a mediaeval king might have 
made when discussing the advisability of having a parliament. 
Is this substitution fair to Mr. Endicott? 

300. 10. Under what conditions should you expect in- 
dustrial organization to be despotic? Democratic? 

301. 11. Is there any reason to believe that the following 
will tend to promote industrial democracy: Educational op- 
portunities for the masses ? Savings banks and other agencies 
that encourage thrift ? Prohibition ? The exclusion of immi- 
grants ? 

302. 12. The paid up membership of the American Fed- 
eration of Labor increased from 1,946,347 in 191 5 to 
4,178,740 in 1920. What factors account for this increase? 



50 PROBLEMS AND EXERCISES IN ECONOMICS 

F. Labor Legislation 
Ely, Ch. XXIII 

303. 1. Argue that if there is keen competition one should 
expect that legislation would be unwise that established a 
legal minimum wage at a point above the competitive wage. 
Argue, also, that such legislation might operate to raise the 
productivity of the laborers to a point above the former wage. 

304. 2. "An industry that does not pay a living wage is 
parasitic and should be destroyed." Explain what is meant. 
If a group of persons are able to produce only part of what 
is necessary for their support, should they be prohibited from 
working? Discuss. 

305. 3. Contrast the principle involved in employers' lia- 
bility for injuries received by employees with that involved in 
workmen's compensation legislation. 

306. 4. "Recent labor legislation represents a marked 
change in thought." Discuss. 

G. The Rent of Land 

Ely, Ch. XX 

307. 1. "The rent of agricultural land is determined by 
subtracting the expense of production from the value of the 
product." a. Construct a simple formula in agreement with 
this statement. 

b. Show that this statement is not inconsistent with 
the text. 

c. Can the rent of all land that is used productively 
be found by rinding the excess of the selling value of 
the product over the expense of production? Illustrate. 

d. How is the rental value of residence sites de- 
termined ? 

308. 2. If the price of potatoes is $1.10 per bushel, what 



THE DISTRIBUTION OF WEALTH 51 

sum would be paid for the use of an acre of land that 
yielded 200 bushels of potatoes at an average cost of $1.00 
per bushel ? 

b. Would the tendency be for any of these bushels to 
cost the producer $1.10? Explain. 

309. 3. a. If the price of corn is 95 cents per bushel, 
what will tend to be the cost of producing corn on the poorest 
land that is being cultivated ? Why ? 

b. What will tend to be the cost of production at the 
intensive margin? Upon what land will corn be grown 
at the intensive margin ? Explain. 

310. 4. If the market rate of interest is such that land 
which is expected to neither appreciate nor depreciate in value 
will be purchased on a five per cent basis, what would be the 
value of such land if the yearly net rental is $500? $600? 
If the basis of capitalization is six per cent? 

311. 5. If the rental from land is expected to increase 
what will be the effect upon the per cent of income received 
on the present market value of the land? Illustrate. 

312. 6. If land income is capitalized at five per cent, what 
will be the effect upon the value of a parcel of land if a tax 
of $100 per year is levied upon it? Explain. Why is it that a 
land tax cannot be shifted to the consumers of the products 
of land? 

313. 7. A certain piece of land yields 20 bushels of wheat 
per acre, — the expenditure per acre being $10. With land 
on the margin of cultivation yielding 10 bushels for the same 
expenditure, and with the rate of capitalization 5 per cent, 
what value would an acre of the 20-bushel land tend to have 
when there was a tax on it equal to 80 per cent of the rent? 
Put down in your answer each step in the solution, and ex- 
plain fully. — T. 

314. 8. The Farm Management Department of the Iowa 
State College of Agriculture gathered information during 
the fall of 1920 which showed that at the prices current on 



52 PROBLEMS AND EXERCISES IN ECONOMICS 

October 18, 1920, three farmers out of five would lose money 
on their wheat and nine out of ten would lose money on their 
oats. The total cost per acre of producing wheat was given 
as $35.78 of which $16.80 was "land charges." A similar 
amount for "land charges" was included in computing the 
cost of producing oats. 

a. Show that the inclusion of land charges in these 
computations amounts to circular reasoning. 

b. Show that if the rental value of land be included 
as a cost most farmers will necessarily make only costs — 
wages, interest, and sufficient profits to cover risk. What 
farmers will make more than costs including land 
charges ? 

315. 9. Formulate Henry George's argument. Is it fair 
to say that his aim was to "socialize rent?" What is meant 
by the statement that private rights have prevented the 
adoption of the "single tax?" 

H. Rent 
Clay, Ch. XIX 

316. 1. Construct tables to show the facts indicated by 
the diagrams on pages 330 and 331. 

317. 2. "Our prices are lower than the prices of our com- 
petitors because we do not have to pay as much rent as they 
have to pay." Is this good economics? Explain. Would a 
tenant-farmer ever make a similar statement? Discuss. 

318. 3. "Rent is a surplus." Explain the meaning. Is 
this sound? 

I. Rent (Continued) 

Clay, Ch. XX 

319. 1. What is the definition of rent that Clay uses in 
this chapter? Discuss the advisability of defining rent in 
this way. 



THE DISTRIBUTION OF WEALTH 53 

320. 2. The fact that "the supply of land is much less 
under the control of man than the supply of different kinds 
of labor and capital" is significant in explaining the process 
by which the price of land is set as compared with the 
process by which the price of a capital good is set. Explain. 

321. 3. If land taxes should be materially increased would 
the production of wealth be affected? Explain. Are other 
taxes similar to the land tax in this respect? Explain. 

322. 4. "The attitude of society toward land investments 
which has prevailed in the past would make the confiscation 
of land rent very inequitable at the present time." Discuss. 

J. Interest 
Ely, Ch. XXIV 

323. I. "Interest can be paid because the utilization of 
capital increases the value of the product; the value of the 
product is increased because capital is limited (scarce) ; cap- 
ital is limited because its production involves the sacrifice 
of waiting." Is this statement in line with the text? 
Explain. 

324. 2. Ely stresses the point that value productivity, not 
merely physical productivity, is necessary if payment is to be 
made for the use of capital. Could a similar point be made 
in regard to payment for the use of labor? Is there any 
difference between the two payments from this point of 
view? Discuss. 

325. 3. What does Ely mean by marginal waiting? Ac- 
cording to his analysis what would be the effect upon the 
supply of capital if the rate of interest should fall? Why? 
If it should rise? Why. Draw a diagram to illustrate. 
Does this agree with Clay's analysis, page 325 ? 

326. 4. What is a replacement fund? Is it necessary to 
save in order to have such a fund ? Explain. 

327. 5. Is saving involved in the making of an ax? 



54 PROBLEMS AND EXERCISES IN ECONOMICS 

328. 6. How could capital be shifted from the railway 
industry to shipping? From the carriage to the automobile 
industry ? 

329. 7. Explain carefully the two points made in the last 
sentence of the paragraph at the top of page 512. Illustrate. 

330. 8. What would be the effect upon the net income 
from houses if all houses were subjected to a special tax upon 
their value? Upon the net income from land if a tax were 
imposed upon land value? Explain. 

331. 9. Name two investment securities that are selling 
on the market to yield different rates of return. Account 
for the difference. 

K. Profits 

Ely, Ch. XXV 

332. 1. Give several illustrations of the two methods of 
getting profits. Are profits in these cases due to the absence 
of keen competition ? Explain. 

333. 2. A retailer, after paying all expenses for the year, 
has a balance to his credit of $2,500. Under what conditions 
should part of this amount be called profit? None of it? 

334. 3. Give the argument to prove that it is socially ad- 
vantageous to allow individuals to reap profits. Show that 
profit seeking does not always advance social welfare. Why 
doesn't it? 

L. Interest and Profits 

Clay, Ch. XVIII 

335. 1. A grocer has $4,000 "profits" as the close of the 
year. Under what conditions could this amount be divided 
as follows : $2,500 wages of management, $500 interest, and 
$1,000 profit? 



THE DISTRIBUTION OF WEALTH 55 

336. 2. Just what is the author's position in regard to 
whether the rate of interest corresponds to marginal saving? 

337. 3. If the wages of unskilled labor should be $2.00 
per day and the rate of pure interest 4% for a long period 
of time, what changes would tend to take place if wages 
should rise to $3.00 per day? If, instead, the rate of interest 
should rise to 5% ? Explain. 

338. 4. If the cost of building a mile of macadam road is 
$6,500, a mile of concrete road $12,000, and a mile of brick 
road $18,000; and if the annual cost per mile of keeping the 
roads in good repair is $600 for the macadam road, $300 for 
the concrete, and $50 for the brick, which road will be the 
most economical when the current rate of interest is 2 per 
cent? When it is 4 per cent? 5 per cent? 6 per cent? 
10 per cent? — (Parry.) 

339. 5. "Labor alone should enjoy the products of in- 
dustry, for labor alone is responsible for the product. This 
is obvious when we realize that if labor were not applied all 
the capital in the world could not produce anything." 

a. Does the truth of the last statement prove the 
second clause in the first sentence to be true? What 
logical fallacy is involved in the quotation? 

b. Write an analogue to the above in which labor and 
capital are made to change places. — T. 

M. The Personal Distribution of Wealth 
Ely, Ch. XXVI 

340. 1. Among the methods of receiving income or ac- 
cumulating wealth which have been criticized are the follow- 
ing: inheritance, land ownership, ownership of capital goods, 
monopoly. Discuss the advisability of allowing individuals 
to receive incomes from these sources. 



56 PROBLEMS AND EXERCISES IN ECONOMICS 

341. 2. "It should be as difficult by sitting still to add a 
penny to one's income as it is by taking thought to add a 
cubit to one's stature." Clay, p. 379. Do you agree? If so, 
what, if anything, should be done to prevent persons from 
receiving incomes "by sitting still?" 

342. 3. Is it to the advantage or to the disadvantage of 
others if one accumulates a fortune? Discuss fully. 

343. 4. Consider the six methods by which Ely suggests 
that the inefficient members of society may be eliminated or 
strengthened. Which of these is the most important? The 
least important? To which one are we giving "the most at- 
tention today? The least attention? 



VIII. SELECTED ECONOMIC PROBLEMS 

A. Transportation 
Ely, Ch. XXVII 

344. I. Just how is it that efficiency in transportation 
promotes national prosperity? 

345. 2. Account for the fact that we insisted for so long 
on having competition in the railway industry. Why has 
it been impossible to maintain competition? Why has the 
failure of competition meant that we must have government 
regulation ? 

346. 3. "The fact that railway service is subject to de- 
creasing cost has made public regulation of rates more im- 
perative than it would otherwise have been." Explain. 

347. 4. Enumerate the principal costs which a railroad 
has to meet. How are these various items of cost affected 
by, say, a 10 per cent increase in traffic? How would divi- 
dends be affected by such an increase in traffic if rates re- 
mained as before? Is it possible that dividends can be in- 
creased by charging a special low rate for this additional 
traffic ? 

348. 5. Why may we expect that "rates will doubtless 
continue to be based to a very large degree on the principle 
of 'charging what the traffic will bear V " 

349. 6. Account for the fact, as shown in the table on 
page 565, that the receipts per ton-mile for shipping cotton 
in the Eastern District were only about one-fourth of the 

57 



58 PROBLEMS AND EXERCISES IN ECONOMICS 

receipts per ton-mile for the Southern District. Account for 
the difference in receipts per ton-mile between anthracite and 
bituminous coal. 

350. 7. Show that it may be to the advantage of the 
people living near the Mississippi River to have the railroads 
charge less for transporting goods from New York to San 
Francisco than for similar shipments from the Mississippi 
River to San Francisco. 

351. 8. "The Standard Oil Company entered into a con- 
tract with a railroad under which the railroad Was to charge 
it only 10 cents a barrel for transporting its oil while charging 
other companies 35 cents for the same service, and was to 
pay to it 25 cents of the excessive charge imposed upon its 
competitors." — Seager, page 431. 

a. Estimate the advantage that this gave to the Stand- 
ard Oil Company. 

b. Were the officers of this company guilty of moral 
turpitude in making such a contract? Were the officers 
of the railroad? 

c. Why should the railroad have been willing to enter 
into such a contract? 

352. 9. "The law does not attempt to prohibit a merchant 
from selling to different individuals at different prices or even 
from giving away his wares. Then why should the railroads 
be so hedged about by legal prohibitions upon the prices to 
be charged?" Discuss. 

B. Insurance 
Ely, Ch. XXVIII 

353. 1. "The increasing utilization of insurance means a 
greater degree of cooperation." Is this true? Discuss 
Name several relatively new kinds of insurance. 



SELECTED ECONOMIC PROBLEMS 59 

354. 2. What is the social advantage of insurance? It 
has been proposed that the insurance of business men against 
failure to realize profits should be encouraged. Do you con- 
sider this advisable? Discuss. 

355- 3- "There is as much reason for carrying endow- 
ment insurance on one's house as on one's life." Do you 
agree ? Explain. 

356. 4. Discuss the possible effects of social insurance 
upon wages. 

C. Agricultural Problems 
Ely, Ch. XXIX 

357. 1. Why did the value of farm land increase pro- 
portionately so much more than the value of buildings and 
implements and machinery during the first decade of this 
century? May we expect this difference in increase in value 
to continue? 

358. 2. Why may we expect that our agricultural in- 
dustry will be neither predominately intensive nor predomi- 
nately extensive? 

359. 3. Discuss the effect of the Federal Land Banks on 
land value. 

360. 4. Argue that the presumption is that the farmer is 
not treated unfairly when selling his crop. 

361. 5. The monthly circular of the National City Bank 
in the February, 1921, issue, gives the following data: 

Column One gives the average monthly prices for the ten- 
year period, 1901-1910, of cash wheat in Chicago. 

Column Two gives the average farm prices for wheat on 
the first of each month, 1910-1919. 

Column Three gives the per cent of wheat marketed by 
United States farmers in different months. 



60 PROBLEMS AND EXERCISES IN ECONOMICS 

Months : One Two 

iooi-io 1910-19 Three 

July 93.1c $1.27.8 12.6% 

August 92.1c 1.28.9 14.9% 

September 92.7c 1.28.4 16.8% 

October 92.3c 1.28 14.6% 

November 91.1c I.31.1 10.9% 

December 93-3C 1.30.2 7.8% 

Average price for six months, 78% 

July-December 92.4c $1.29 

January 91.2c $1.20.5 5-7% 

February 93-5C 1.26.4 4.6% 

March 92.8c 1.25.6 3-3% 

April 92.3c 1.27.1 3-5% 

May 95.6c 1.37.2 3 % 

June 95.7c 1.36.5 2.3% 



Average price for six months, 2.2% 

January-June 93-Sc $1.29 

During which months was it most profitable for a farmer 
to sell wheat during 1901-10? 1910-19? What was the 
middleman who purchased wheat in the fall and held it until 
spring paid for his services during each of these decades? 
Do the speculators depress the price when the farmer is 
marketing the bulk of his crop and boost the price after he 
has sold ? 

D. Socialism 
Ely, Ch. XXX 

362. 1. "Syndicalism is more related to anarchism than to 
socialism." Explain. 

363. 2. Is our public school system a socialistic enter- 
prise? Our postal system? Is all government regulation 
socialistic? Compare the extent of government regulation 
today with that of 20 years ago; with that of 70 years ago. 



SELECTED ECONOMIC PROBLEMS 61 

Are we likely to have more government regulation in the 
future than we have now, or less? Discuss. 

364. 3. List the facts that may account for one's being a 
socialist. 

365. 4. Why is the socialist party so weak in the United 
States? 



IX. PUBLIC FINANCE 

A. Public Expenditure 
Ely, Ch. XXI 

366. 1. "Public finance has become the central righting 
place for social reform." Explain and illustrate. 

367. 2. Should we expect an increase or a decrease in 
public expenditures during the next twenty-five years? 
Why? 

368. 3. The expenditures of our national government for 
1920, which were approximately $4,000,000,000, have been 
analyzed as follows: 68% for past wars, 25% for future 
wars, 6% for executive, legislative, and judicial purposes, 
and 1 % for education. This analysis bears upon what points 
in the text? Discuss. 

. B. Public Receipts from Loans and Government 

Ownership 

Ely, Ch. XXII 

369. 1. "In 1818 the United States gave a square mile of 
land in downtown Chicago to the State of Illinois for educa- 
tional purposes. The rent from this today would be suf- 
ficient to support the entire school system of the State of 
Illinois without an additional dollar of taxation." Discuss 
the advisability of the State's having kept this land. 

370. 2. "Henry George's scheme is much more advisable 
in cities than in the country." Do you agree ? Discuss. 

62 



PUBLIC FINANCE 63 

371. 3. "Increase in land value may be earned through 
purchase just as present rents may be so earned." Explain. 
What limitations does this place upon increment taxation if 
we would avoid confiscation of land value? Suggest a plan 
for taxing the increase in land value that will not confiscate 
any of the present value. 

372. 4. "The argument in favor of free street car service 
is far stronger than might be expected at first thought." De- 
velop the argument. 

373- 5- "The entire question (of the government's taking 
over certain activities) turns upon the choice of the means 
of satisfying certain common collective wants." Explain. 
What elements will influence choice in this matter? 

C. Public Receipts: Derivative Revenues, Fees, 
Special Assessments, and Taxes 

Ely, Ch. XXXIII 

374. 1. "The fee system is bad when the fees are retained 
as salary by the officer collecting them." Is this sound? 
Discuss. 

375. 2. "We cannot have more than approximate justice 
in taxation." Explain and illustrate. 

376. 3. Give an illustration of a tax levied according to 
ability ; one levied not according to ability. 

377. 4. Is there any way by which we can determine the 
relative tax paying abilities of a person with an income of 
$4,000 and one with an income of $400,000? Discuss. 

378. 5. "The shifting of taxes is a price phenomenon. 
Shifting takes place only because of a withholding of sup- 
ply." Do you agree? Discuss and illustrate. 

379. 6. If the real estate tax should be considerably in- 
creased, what effect would this tend to have upon: 

(a) The rental charged for land? Why? 



64 PROBLEMS AND EXERCISES IN ECONOMICS 

(b) The rental charged for houses? Why? 

(c) The selling price of land? Why? 

(d) The selling price of houses? Why? 

380. 7. "The purchaser of land after the imposition of a 
land tax buys free of a tax burden." Why is this thought 
to be true? Would it be true if land alone were taxed? 
Is it true if land is only one among many objects that are 
taxed ? Explain. 

381. 8. Argue that a tax on excess profits is not shifted. 

D. Public Receipts: Federal, State, and Local Taxes 

Ely, Ch. XXXIV 

382. 1. List the meritorious features of the federal in- 
come tax. Has it any objectionable features? Explain. 

383. 2. May we expect an increased use of inheritance 
taxation in our fiscal system ? Discuss. 

384. 3. Why does the general property tax foster dis- 
honesty ? 

385. 4. Just what is double taxation? Illustrate. 



X. A CRITIQUE OF THE PRESENT ECONOMIC 

SYSTEM 

A. The State and the Economic Organization 

Clay, Ch. XXI 

386. 1. "We regulate the cooperation of the various in- 
dividuals of our society largely by competition." Explain. 

387. 2. Just why is it that we cannot rely exclusively upon 
competition as a regulator of our economic activity? Ex- 
plain and illustrate. 

388. 3. "The problem of taxation will become more and 
more important as the state has to assume a larger share in 
the regulation of economic activity." Is this sound? 
Discuss. 

389. 4. Suggest taxes that would tend to reduce ef- 
ficiency; that would not have this effect. 

B. The State and the Economic Organization 

( Continued) 

Clay, Ch. XXII 

390. 1. Construct a popular argument which you have 
heard, or which might be given, upon some point in eco- 
nomics that is based upon the first of these four assumptions ; 
the second ; the third ; the fourth. 

391. 2. Cite cases, from your experience, of persons who 
have not acted in accordance with their economic interests. 

65 



66 PROBLEMS AND EXERCISES IN ECONOMICS 

392. 3. List the qualities that are essential to marked suc- 
cess in business. Are all of these estimable qualities? 
Explain. 

393. 4. What is meant by the statement, "Some property 
is functionless." Illustrate. 

394. 5. Is most economic activity a social service? Dis- 
cuss. 

395. 6. Does market value for the most part direct the 
economic forces to the tasks that are most important so- 
cially ? Discuss. 

396. 7. Does the 18th amendment restrict the operation of 
market value as a social guide? Explain. 



C. Wealth and Welfare — the Measure of Wealth 

Clay, Ch. XXIII 

397. I. Make an estimate of the part of our annual 
product that is "illth." Is the proportion of "illth" to 
"wealth" increasing or decreasing? Discuss. 

398. 2. How could we ascertain the net contribution 
which wealth makes to welfare? 



D. Wealth and Welfare — Economic Influences on 

Welfare 

Clay, Ch. XXIV 

399. 1. "In those classes of our society in which social 
worth is measured by a pecuniary standard it is impossible 
for any one to be happy." Do you agree? Do we in general 
make our decisions as to the desirability of "knowing" certain 
persons, on the basis of their economic position? Is there 
much of what has been called "conspicuous consumption?" 



THE PRESENT ECONOMIC SYSTEM 67 

Is the pecuniary ideal at all productive of social good? 
Discuss. 

400. 2. What can we do to get people to desire the kinds 
of satisfaction that will promote welfare? 

401. 3. Give several illustrations of the sacrifice of the 
producer to the product. 

402. 4. "Trade unionism restricts output." If this is true 
does it follow that it is undesirable to have trade unions? 
Discuss. 

403. 5. "Work is an end as well as a means to an end." 
Cite cases in which this is true ; cases in which it is not true. 
Which class of cases is the more common? Discuss. 

E. Wealth and Welfare — Business and Morality 

Clay, Ch. XXV 

404. 1. Do you agree with the suggestion of the author 
that the civilization of Chicago is inferior to the civilization 
of Athens? Discuss. 

405. 2. "The laissez-faire philosophy is very largely an- 
archistic." Explain. In what respects is it not anarchistic? 

406. 3. "The policy of laissez-faire is based upon the 
same social philosophy as the policy of 'free love/ " Is this 
true? Discuss. 

407. 4. Within what limits or under what conditions 
would welfare vary directly with wealth? 

408. 5. What is the most effective thing that you can do 
to make our economic society more ideal ? Suggest a general 
program that would tend to improve our economic society. 



